In the third quarter of the 2020-2021 financial year Bluebird Aviation earned Sh221.6 million. The business was booming.
The firm was just coming out of a vicious boardroom war among its directors over just how much it has been making in profit since its incorporation in 1992.
Co-founder Yusuf Abdi Adan had unsuccessfully sued other directors – Hussein Ahmed Farah, Hussein Unshur Mohammed, and Mohammed Abdikadir Adan – in multiple suits for allegedly keeping two sets of books.
He claimed one book was for authorities- showing that Bluebird Aviation was barely staying afloat and another for themselves which showed that Mr Farah and Mr Adan had pocketed billions of shillings over 25 years.
The money, the disgruntled director claimed, would be bundled into chartered airplanes in cash and smuggled offshore. But authorities dragged into the mudslinging before courts, were unable to find any evidence of money laundering and tax evasion at Bluebird Aviation. The DCI’s nine-month investigation gave the airline and its directors a clean bill of health.
The Kenya Revenue Authority (KRA) said Bluebird has always been a model corporate citizen, filing returns on time and whose financial statements drew zero suspicion of clever accounting or tax evasion.
Between January and March 2021 when Bluebird Aviation made Sh221.6 million, the KRA was fighting off a class action suit challenging implementation of minimum tax.
The new levy was to take a one per cent share of the revenue made by all businesses regardless of whether they made profits or losses. It had been introduced to corner businesses that were using clever accounting to declare losses and evade taxes.
Justice George Odunga, sitting in Machakos, had temporarily stopped the taxman from collecting minimum tax pending his determination of the class action suit filed by Kitengela Bar Owners Association (KBOA), the Kenya Association of Manufacturers (KAM), the Retail Trade Association of Kenya (Retrak) and the Kenya Flower Council. KRA projected that aside from netting tax evaders, the levy would bring in at least Sh21 billion every year, which the government could use to complete key infrastructure projects.
But the suing lobbies held that the new tax would punish loyal taxpayers and risk collapsing thousands of businesses that were already struggling on account of partial economic shutdowns aimed at curbing Covid-19 spread.
Justice Odunga temporarily stopped the collection of minimum tax in April 2021 before permanently barring its implementation five months later. The taxman moved to the Court of Appeal to challenge Justice Odunga’s judgment. In December 2021 Bluebird Aviation paid KRA Sh2.2 million in minimum tax. The amount was to cover the third quarter of the financial year.
Interestingly, the airline’s corporate tax of the 2020-2021 financial year was Sh21,175 – less than one per cent of its corporate tax.
The low corporate tax bill was on account of past losses. Bluebird had carried over losses of Sh439 million. The losses were made between 2016 and 2020.
In the 2020-2021 financial year, it declared a Sh100 million loss.
After filing returns, Bluebird Aviation was issued with a tax compliance certificate.
Owing to Justice Odunga’s quashing of the minimum tax, Bluebird Aviation was due for a refund.
Freeze airline’s accounts
But on January 25, 2022, the taxman sent notices to Bluebird Aviation’s bankers, asking them to freeze the airline’s accounts.
The airline has now sued the KRA claiming that the Commissioner of Domestic Taxes has not provided it with the assessment leading to the Sh1.08 billion claim.
Bluebird Aviation director Hussein Unshur Mohammed now says the airline is staring at bankruptcy if the KRA is allowed to drain its bank accounts to recover the disputed taxes. The airline insists that it has never been informed of any review of its tax records, hence the demand is illegal and should be dismissed.
“For the avoidance of doubt, Bluebird Aviation disputes the entire claimed amount of Sh1,080,474,327. It is instructive to note that there is no breakdown for the claimed amount demonstrating the period that it relates to in the agency notice dated January 25, 2022,” Mr Mohammed says in court papers.
“The Commissioner of Domestic Taxes has summarily and arbitrarily jumped straight into the enforcement of imaginary taxes against Bluebird Aviation without affording it an opportunity to be heard. Should the agency notice be given effect, Bluebird Aviation will be adjudged bankrupt in light of the colossal sum claimed by the Commissioner of Domestic Taxes,” Mr Mohammed adds.
KRA is yet to respond to the suit, but its filings are expected to reveal whether the Sh1.08 billion demand is from the same time that Bluebird’s disgruntled director claimed that his peers were evading taxes and laundering money.
